jes( In

Privatization of Fertilizer Marketing in Cameroon:

A Sith-Year Assessment of

the Fertilizer Sub-sector Reform Program

Technical Report

Richard D. Abbott

Edward K. Dey

and

Francois Kamajou

June 1994

Postharvest Institute for Perishables

Unherstyotdaho

Privatization of Fertilizer Marketing in Cameroon:

A Sixth-Year Assessment of

the Fertilizer Sub-sector Reform Program

Technical Report

Richard D. Abbott

Edward K. Dey

and

Francois Kamajou

June 1994

Postharvest Institute for Perishables

TABLE OF CONTENTS

Page No.

List of Exhibits ................................................... iv

Glossary ......................................................... v

Introduction ...................................................... vi

1. Overall Assessment of Program Performance ............................ 1

1.1 Goals and Objectives of the FSSRP ............................. 1 1.2 End of Program Status Conditions (Program Outputs) ............... 1 1.3 Impact of the Program ...................................... 4 1.4 Sustainability ............................................. 6

1.4.1 Sustainability of Liberalization Policies ...................... 6 1.4.2 Sustainability of the Private Sector ......................... 7 1.4.3 Sustainability of Public Sector Capabilities ................... 8

2. Findings and Recommendations ...................................... 8

2.1 Principal Findings Concerning the 1993/94 Program ................. 9 2.1.1 Overall Assessment of the Program ........................ 9 2.1.2 Imports and Sales Levels .............................. 10 2.1.3 Participation by Banks and Importers ...................... 10 2.1.4 Participation at the Distribution Level ...................... 10 2.1.5 Fertilizer Prices ..................................... 10 2.1.6 Effects of FCFA Devaluation on Fertilizer Consumption ......... 11 2.1.7 Use of Importation Loan Subsidy Funds .................... 11

2.2 Recommendations ......................................... 11 2.2.1 Recommendations Related to Fertilizer Marketing ............. 11 2.2.2 Recommendations Related to the Revolving Credit Fund ........ 13 2.2.3 Recommendations Related to the Medium Term Lending Facility 13 2.2.4 Administrative Recommendations ......................... 14 2.2.5 Recommendations Related to Farmer Utilization of Fertilizer ..... 15

2.3 The Sixth Annual FSSRP Seminar/Workshop ..................... 16 2.3.1 Resolutions ........................................ 16 2.3.2 Recommendations ................................... 17

3. Performance of the FSSRP through 1993/94 ............................ 21

3.1 Imports, Sales and Stock Situation for 1993/94 Program Year ........ 21 3.2 Historical Perspective on Imports, Sales and Stocks ................ 21 3.3 Private Sector Participation in the FSSRP ....................... 24

i

3.3.1 Overview ......................................... 24 3.3.2 Participation by Banks ................................ 24 3.3.3 Participation by Importers .............................. 24 3.3.4 Participation by Distributors and End Users .................. 26

3.4 Fertilizer Prices ........................................... 28 3.5 Effects of FCFA Devaluation on Benefit/Cost Ratios ................ 28 3.6 Inportation Loan Facility Operations .......................... 31 3.7 Subsidy Fund Operations .................................... 31

4. Financial Performance of the Program in 1993/94 ....................... 35

i.1 Financial Conditions and Banking Environment in Cameroon ......... 35 4.2 FSSRP Financial System and the Banking Sector .................. 37 4.3 Commercial Bank Role in the FSSRP .......................... 38 4.4 Fiduciary Bank Role ....................................... 39 4.5 Summary of Current Banking Arrangements ..................... 39

5. Farm Level Performance of the Program .............................. 41

5.1 Farm Level Studies ........................................ 41 5.2 Fertilizer Distribution at the Retail Level ........................ 43 5.3 Proposed Activities ........................................ 44

APPENDICES

Appendix A Proposed Financial Structure of New Program .................. 47 1. General Comments .......................................... 47 2. The Revolving Credit Fund .................................... 47 3. The Medium Term Lending Facility .............................. 55 4. Administrative Issues and Recommendations ........................ 60

Appendix B Fiduciary Bank Activities .................................. 65 1. Special Local Currency Account ................................. 65 2. Status of the Subsidy Fund .................................... 65 3. Loan and Subsidy Status ...................................... 65 4. Current Operations and Suggested Improvements ..................... 69

Appendix C Commercial Bank Activities ................................ 73 1. CrdditAgricole du Cameroun S.A ................................ 73 2. Banque Meridien BIAO ........................................ 78 3. Amity Bank Cameroun S.A..................................... 79 4. Standard Chartered Bank Cameroon S.A........................... 81

ii

Appendix D Importer Activities ....................................... 85 1. The IBE Group Inc. - Africa Headquarters.........................85 2. IBEX .......................... ......................... 89 3. Groupe One ................................................ 94 4. Bakah Enterprises ............................................96

Appendix E Distribdtor Activities.....................................97 1. CAPLAMI".............................. .................. 97 2. CAPLAME...............................................98 3. UCAL... ................................................ 99 4. North West Cooperative Association .............................. 100 5. IDS Cameroon............................................103 6. COOPAM OR . ............................................ 104 7. Pelenget ... ............................................. 104 8. FME....................................................105 9. ADER ............ ...................................... 106 10. COOPLAM ............................................... 107

Appendix F Retailer Activities ........................................ 109 1. Etablissement Fotso Michel .................................... 109 2. QuincaillerieModerne du Noun .................................110 3. La Maison des Engrais ....................................... 11 4. La Maison du Planteur.......................................112 5. PROPHYCAM ............................................112 6. Foumbot Retailer ........................................... 113 7. SOCARA .... ........................................... 13

Appendix G Other Financial and Donor Organizations ..................... 115 1. American Embassy Yaound....................................115 2. Ministry of Finance.........................................1 15 3. Caisse Fran~aisede Ddveloppement .............................. 117 4. European Communities' STABEX Fund...........................118 5. BEAC - Commission Bancairede i'Afrique Centrale ................... 120 6. European Communities Delegation ............................... 123

ppendix H Proposed Investment Activities Under the MTLF ................ .25 1. The SOMENAC Proposal .....................................125 2. Africa Project Development Facility .............................. 129 3. FERIDA Fertilizer Project .....................................131

iii

LIST OF EXHIBITS

Page No.

Exhibit 1 Imports, Sales and Stock Situation, 1993J..4 ...................... 21 Exhibit 2 Imports, Sales and Stock Summary, 1988/89 to 1993/94 ............. 22 Exhibit 3 Fertilizer Marketing Trends, 1988-1994 ......................... 23 Exhibit 4 Private Sector Participation in the FSSRP, 1988/89-!993/94 ........... 25 Exhibit 5 Fertilizer Distribution Flow ................................. 27 Exhibit 6 Econoaic Returns to Fertilizer Application on Coffee ............... 29 Exhibit 7 Importation Loan Status (as of 30 April 1994) .................... 32 Exhibit 8 Subsidy Disbursement and Earmarking (as of 30 April 1994) .......... 33

Exhibit A-I Summary of Proposed Changes in FSSRP for 1994-95 Revolving Credit

Exhibit A-2 Fund ......... ........................................ Summary of Proposed Changes in FSSRP for 1994-99 Medium Term

48

Lending Facility ......................................... 58

Exhibit B-I Status of the FSSRP Special Cunency Account (as of 30 April 1994) .... 66 Exhibit B-2 Status of the FSSRP Subsidy Fund, (as o7 30 April 1994) ............ 67 Exhibit B-3 Fertilizer Subsector Reform Program Loan and Subsidy Status

(as of 30 April 1994) ...................................... 68

Exhibit D-1 IBE Sales by Product and Customer 21 April 1993 - 15 April 1994 ..... 87 Exhibit D-2 IBEX Fertilizer Imports, 1993/94 Program ....................... 90 Exhibit D-3 IBEX Distribution by Type of Customer, 1993/94 .................. 91

iv

GLOSSARY

APDF Africa Project Development Facility (IFC/World Bank) BCD Banque Camerounaise de Ddveloppement BCCC Bank of Credit and Commerce Cameroun BEAC Banque des Etats de l'Afrique Centrale BIAO Banque Intemationale pour l'Afrique Occidentale BICIC Banque Intemationale pou." le Commerce et l'Industrie du Cameroon BMBC Banque Meridieji BIAO Cameroun CAC Credit Agricole du Cameroun CB Commercial Bank CCCE Caisse Centrale de Coop&ation Economique CCEI Caisse Commune d'Epargne et d'Investissement COBAC Commission Bancaire de l'Afrique Centrale FB Fiduciary Bank F.O.B. Free on Board FSSRP Fertilizer Subsector Reform Program GIP General Information Pamphlet GRC Government of the Republic of Cameroon ha Hectare lFC International Finance Corporation IFDC International Fertilizer Development Corporation kg Kilogram I/c Letter of Credit mt Metric ton MTLF Medium Term Lending Facility NWCA North West Cooperative Association ONCPB National Produce Marketing Board PRAMS Program of Reform in the Agricultural Marketing Sector PSIE Programme Spdcial d'Importation d'Engrais SAL Structural Adjustment Loan SCB Standard Chartered Bank SCCB Standard Chartered Bank, Cameroon SGBC Socidt6 Gn6rale de Banque Camerounaise SNI Socidt6 Nationale d'Investissement SRC Socidtd de Recouvrement de Cr~ances TSC Technical Supervisory Committee of the FSSRP TSU Technical Support Unit of the FSSRP UCCAO Union Centrale des Cooperatives Agricole de l'Ouest UDEAC Union Ddmocratique des Etats de l'Afrique Centrale UNIDO United Nations Industrial Development Organization USAID United States Agency for International Development

v

INTRODUCTION

This report, is the sixth and final annual assessment of the Fertilizer Sub-Sector ReformProgram of Cameroon prepared for USAID/Cameroon by the Postharvest Institute forPerishables, University of Idaho. USAID's involvement in the program terminated with theclosure of the 1993/1994 season on 1994.30 April As documented in this report, the program will continue in a somewhat different form, the principal differences being thatsubsidies will no longer be paid on imported fertilizer and the private sector will take partin program management through membership on the Technical Supervisory Committee. Loanfunds originally contributed by USAID will continue to be used for short-term financing offertilizer imports and also for medium-term loans for investments in fertilizer preparation and distribution.

The principal author of the report Richardwas D. Abbott of the Postharvest Institute forPerishables, University of Idaho. He was assisted by Edward K. Dey, banking specialist, andDr. Franqois Kamajou of the University Center of Dschang. The field work for the reportwas carried out in Cameroon between April 13 and May 6, 1994.

This year's report begins with an overall assessment of performance of the program, measuredagainst goals and objective established when the program was conceived. Issues of impactand sustainability of fertilizer liberalization and privatization measures instituted by the program are also examined.

Section Two consists of a summary of findings on the 1993/94 program year,recommendations of the consultants and proceedings of the annual FSSRP seminar/workshop.

Section Three covers the performna,ice of the 1993/94 prograni year, including a record offertilizer imports, sales, and stock levels during the year, the level of participation of eachcategory of private sector participant, fertilizer price movements, the effects on fertilizermarketing of FCFA devaluation, and finally operations of the importaion loan facility and the subsidy fund.

Section Four is a separate assessment of the financial performance of the FSSRP, focusingon the role of commercial banks in the program, while Section Five examines theperformance of the program at the farm level and at the retail sales level. Finally, AppendixA is a detailed discussion of proposals for the financial stncture of the new FSSRP upon thewithdrawal of USAID, including future operations of the Revolving Credit Fund and the Medium Term Lending Facility.

This technical version of the assessment also includes seven additional appendices. Five ofthese treat in turn activities of the fiduciary bank, commercial banks, importers, distributors,and retailers during the year. The sixth is a record of interviews with various financial anddonor organizations. The seventh appendix is an analysis of and comments on a proposal bythe SOMENAC firm to build a fertilizer mixing and bagging plant at Douala, to be financedin part by the FSSRP Medium Term Lending Facility.

vi

This annual assessment was carried out under the supervision of the Technical SupervisoryCommittee (TSC) of the FSSRP and its President, M. Alinga Ateba Innocent. Assisting inthe assessment were M. Felix Nkonabang, Administrative Coordinator of the TSC and M.Richard Molu, Technical Coordinator of the TSU. The authors also wish to acknowledge the support and participation of the Economic Analysis and Policy Reform Implementation(EAPRI) Unit of USAID headed by Dr. Kifle Negash. Mr. Daniel Moore of EAPRI againthis year provided invaluable technical and logistical support during the authors' stay in Cameroon and prepared several of the exhibits used in this report.

1. OVERALL ASSESSMENT OF PROGRAM PERFORMANCE

In this report on the final year of USAID/Cameroon participation in the Fertilizer Sub-Sector Reform Program (FSSRP), we have included an overall assessment ,,f performance of the program over the past six years. The assessment begins with a statement of the goals and objectives of the program, measures performance against a series of expected program outputsestablished when the program began, examines the impact of the program on independenteconomic actors and on other donor agencies, and finally makes assessments about the sustainability of the privatized fertilizer distribution system. Source documents for this analysis are listed at the end of the section.

1.1 Goals and Objectives of the FSSRP

The goal of the FSSRP is to establish a private market for fertilizer importation, distribution, and fiancing that is competitive, sustaiiable, and subsidy-free.

Program objectives are to:

+ Liberalize the importation and distribution of fertilizer. 4 Progressively eliminate government subsidies on fertilizer. + Promote the expansion of the private sector in the financing, importation and

distribution of fertilizer. * Provide technical and other assistance to support the program's objectives.

1.2 End of Program Status Conditions (Program Outputs)

Performance of the FSSRP is measured below against a set of seven "Life of Program Outputs" (LOP Outputs) established by USAID and the Government of Cameroon (GRC) at the outset of the program.

LOP Output #1: The GRC has implemented the policy reforms which are necessaryfor market liberalization and which permit the private sector full access to the importation, distribution,financing,andsale offertilizer in the partof Cameroon covered by the FSSRP.

The government of Cameroon has instituted all policy reforms necessary to privatize and liberalize the fertilizer importation and distribution process. This has been accomplished by(I) the cessation of activities of the FONADER agency, which formerly contracted for fertilizer with importing com.panies and allocated the product among users, (2) the progressiveremoval of subsidies until they reached zero at the end of the 1993/94 program year, (3) the elimination of price controls on fertilizer, and (4) allowing private sector entities to freely import and distribute fertilizer.

LOP Output#2: The privatesectoraloneis responsiblefor thefull rangeof importationand distributionactivities in the FSSRP areaof operation and receives no external or technical supportfrom outside agencies, including subsidiesfrom the GRC.

The private sector, including commercial banks, importers, and distiibutors, have taken overfull responsibility for importation and distribution of fertilizer. Direct payment of subsidies to importers has been eliminated. However, importers and distributors may still enefit from below-market interest rates on loans through the Revolving Cedit Fund of the program.

LOP Output #3: The privatesector is providing a range offertilizer typesfor retailsale atreasonableprices at the times andin the quantitiessufficient to meet demand in those areas of the country covered by the FSSRP.

LOP Output #5: The importers and distributorsoffertilizer are responsive to quantitativeand qualitativechanges in demand

CIF costs of imported fertilizer declined from an average of FCFA 97,600 per mt under theFONADER program to FCFA 50,100 per mt in 1992/93 under the FSSRP while world marketprices remained stable. This decrease has been almost entirely due to more efficient procurement practices by the private sector, such as negotiation of better terms with suppliers,and importation in shipload lots rather than partial shiploads. In the competitive fertilizermarket now existing in Cameroon, distribution costs have also declined-from FCFA 36,000 per mt under FONADER to FCFA 26,500 urder the FSSRP in 1992/93. These stril-ing costreductions point up the gross inefficiencies 'which existed in the old government monopoly system.

In accordance with the objectives of the FSSRP, subsidies have been progressively reduced,dropping from 66.3% of delivered cost under the old FONADER program in 1987/88 to zeroin 1994/95. However, the efficiency gains noted above moderated retail price increases, an indication that fertilizer prices are reasonable under current conditions in Cameroon.

The wholesale/retail network described above is making fertilizer available virtually yearround in the high consumption areas to any user with cash to pay for it. Some interruptionsof supply still occur, however, as in the 1993/94 season when CFA franc devaluation createddemand uncertainties and payment problems for importers. The availability of subsidiesthroughout the six years sometimes created supply irregularities when competing importersearmarked for subsidies in excess of their needs and discouraged other importers from acting.With the termination of subsidies, this factor has been removed. It should also be noted thatthe impact of the FSSRP was felt mainly in the four western provinces of Cameroon--theWest, Littoral, North West and South West--where demand was high. It had little impact onthe low consuming provinces of the Center, South and East. (A different program covered the three northern provinces.)

2

As to qualitative changes in demand, under the terms of the FSSRP fertilizer types were limited to the five types formerly imported through the FONADER program. These types-intended mainly for coffee-were not always optimum for vegetables and other food crops,which became important users of subsidized fertilizer with the decline in coffee prices. Adecision was made in May 1994 that the revised FSSRP program will henceforth openimports to any type of fertilizer which the market demands. The private sector distribution system has responded well to the shift toward vegetable crops by seeing to it that supplieswere available throughout most of the year rather than only at the two application periods forcoffee. General satisfaction with the program by farmers in the four western provinces was revealed by farm level surveys carried out in 1990 and 1992.

LOP Output #4: There are enough active orpotentialprivate sectorparticipantsto assure that competitive conditions prevail throughout the fertilizer marketing chain.

, key objective of the FSSRP was to create a private sector distribution system for fertilizerin Cameroon. Significant changes took place in the system during the life of the program.Under the old FONADER program, coffee cooperatives were the only beneficiaries ofsubsidized fertilizer imported by the government, which was distributed to members throughwhat was essentially a closed system. Other farmers, such as those growing food crops,could choose either to pay the much higher price for non-subsidize fertilizer or try topurchase subsidized fertilizer diverted from cooperative supplies. By the end of the FSSRP,the following conditions existed:

+ As many as five commercial banks have been accredited under the program in any one year, and typically two to four banks opened letters of credit for importers.

+ Two or three importers participated each year of the program, although as many as 14 solicited orders from distributors. Importing firms now compete in selling to smaller wholesalers who have their own networks of retailers. Several importers havestanding arrangements with distributors under which credit is extended for purchases,creating the essential elements of a privately-financed distribution system.

+ Independent distributors (privately-owned companies selling at wholesale) sold 45% of the total amount imported in 1993/94. This included eight companies handling more than 100 mt, and a large number dealing in smaller quantities. This comparesto four firms in the first year of the program and none at all under the FONADER program. All but one of these companies are Cameroonian-owned.

+ Coffee cooperatives have decreased in importance as distributors. Cooperatives now compete in a free market with independent distributors, though some choose to subsidize the cost to members, and to recover the subsidy through coffee sales.

+ At the retail level, there has been a proliferation of small merchants in the West and North West Provinces selling fertilizer in sack lots. These merchants purchase their fertilizer from the distributors, generally on a cash basis, and sell in 50 kg sack lots,and sometimes in smaller sizes. "Cup sellers" selling in even smaller quantities have recently made their apl'-arance in village markets.

3

LOP Output #6: The pe-ticipants involved in the fertilizersub-sector, including the GRC, the privatesector, and thefarming public are committed '. andpracticing,their new roles and their new relationshipswith other participantsresultingfrom the privatizedsystem.

The commitment of the private sector to the privatized system is demonstrated by the steadilyincreasing number of participants and by new investmentts in fertilizer wholesale facilities (warehouses) and retail stores, particularly in the past two years. At the import level, several companies now have plans in advance stages of preparation for investments in frrtilizer mixing and bagging at the port of Douala. Further evidence of commitment was the formation in May 1994 of the Association Camerounaise des Professionnels d'Engrais (ACPE), grouping importers and distributors, and also associating commercial banks. There has been no evidence that the GRC plans any change in its indirect supporting role.

LOP Output #7: The GRC is performing appropriate public functions to support a liberalized, privatized fertilizer sub-sector, including: maintaining quality controls, coordinating research and extension rela.,-d to soilfertilization, and collecting, analyzing,anddisseminatinginformation relatedto the presentstatusand future of thefertilizermarket in Cameroon.

The Technical Support Unit of the FSSRP, now renamed the Agricultural Inputs Development Unit (AIDU), has taken on responsibility for dissemination of market and technical information through a periodical publication ("Conjoncture"),and through radio and television spots. Plans are to expand the range of information provided and eventually to make current market information available to subscribers through facsimile. Much remains to be done in terms of research and extension on fertilizer use. The AIDU has recently been givenresponsibility for coordination and funding of these activities through the Ministry of Agriculture and other agencies.

1.3 Impact of the Program

The Bloch and Eriksen report (Ref. # 2) makes a useful distinction between accomplishments and impacts. Accomplishments are defined as outputs directly attributable to the provision of resources--cash grants, technical assistance, policy dialogue, participant training, etc. These have been discussed above. In Bloch and Eriksen's definition, "impacts are actions taken by independent economic actors in response to the new opportunities presented by successful policy reforms". The authors found the following evidence of impacts of the FSSRP, some of which are linked to arabica coffee marketing liberalization under USAID's Program of Reform in the Agricultural Marketing Sector (PRAMS).

Farmershave proven themselves highly responsive to the new commodity and input price relationshipsthey arefacing.

In contrast to the opinion of many GRC officials, farmers have generally proved capable of making their own resource-allocation decisions. For example, under the old paternalistic

4

system the government basically made decisions for coffee planters by artificially fixingprices for coffee and fertilizer. In the p:esent liberaliz td environment, with prices conforming more closely to world market prices, farmers have made rational decisions--such as reducingfertilizer application on coffee as returns declined with low coffee prices, and applying it instead to higher-value food crops.

Improved resource allocationsbased upon clearer market signals.

Anecdotal and survey evidence suggest that farmers are much more cost conscious in the purchases of inputs, and are reallocating land and labor based upon reeat changes in the relative profitability of the crops they grow. Before the liberalization of arabica coffee marketing, and prior to devaluation, when coffee prices were very low, there was a definite tendency toward diversion of fertilizer from coffee toward the more profitable food crops.Since devaluation, when arabica coffee prices sharply increased, there is evidence of a swingback toward the use of fertilizer on coffee.

The demonstrationeffects of successful policy reforms within the arabicacoffee andfertilizer sub-sectorshave had positive impacts on the prospectsforprogressiveliberalizationofother commodity chains, particularlyrobusta coffee and cocoa, and with regard to other input procurementand distributionsystems.

The success of liberalization measures under the USAID-supported FSSRP and PRAMS programs has been in sharp contrast to the difficulties experienced by other donors in their attempts to restiucture the robusta coffee and cocoa marketing chains. Representatives of both major French development assistance agencies, the Fonds d'Aide et Coopdration(FAC)and the Caisse Franaise de Developpement (CFD), have evaluated the contrasted experiences, and are reported to be interested in adopting many elements of USAID-supportedreforms in the other commodity marketing systems. Similarly, the success of the reforms appeared to have spurred interest in the GRC and donor community in accelerating marketingreforms with respect to other agricultural inputs, such as seeds and agricultural chemicals.

There were also some factors which may have reduced the impact of economic policy reforms.

The sequencing of reform activities muted impacts in both the fertilizer and arabicacoffee sub-sectors.

Since farm-level use of fertilizer in the North West and West Provinces has proven to be closely linked to the producer prices received for arabica coffee, liberalization and privatization of both sub-sectors simultaneously would have had mutually reinforcing effects on the allocation of resources in the region. Instead, fertilizer prices were rised while coffee prices were declining. Modest gains in the profitability of coffee engendered by cost reductiops and better marketing of coffee at NWCA were muted by the increases in fertilizer

5

prices. Finally, FCFA devaluation, which should have taken place before any of these reforms were attempted, came at the very end of the process.

Differential access to local bank credits between foreign and domestic firms was a major technicalconstraintto more Cameroonian-ownedfirms seizing the opportunitiescreatedby reform activities.

Fertilizer importation under the FSSRP was dominated by foreign-owned firms. One of the major reasons for this situation was the preference accorded by banks to more solidlyfinanced foreign firms as opposed to smaller Cameroon firms. Nor has the program led to the repatriation of capital held abroad by Cameroonians and its investment in the fertilizer industry. As a result, at the importation level, Cameroonian entrepreneurs have not been the major beneficiaries of FSSRP reforms.

1.4 Sustainability

1.4.1 Sustainability of Liberalization Policies

Liberalization measures promoted by the FSSRP have taken hold firmly and the private sector is marketing fertilizer much more efficiently than the public sector managed program ever did. Under its current straitened financial condition, it seems unlikely that the government, or at least the present government, would return to the, old managed fertilizer system or anything like it.

There are a few situations, however, which might induce the government to intervene in other ways:

4 The predominance of foreign-owned firms in the import of fertilizer could cause the government to intervene to give preference in some way to Cameroonian firms.

+ The offer of donations of fertilizer from foreign donors could, if given away without charge, interfere with the private marketing of fertilizer.

+ Coffee cooperatives, which have been considerably weakened by low returns on coffee in recent years, and by competition from the private sector, could appeal to the government for support in the foim of operating subsidies, also interfering with liberalization.

* Should a single importer achieve a monopoly position, the government mightintervene to assure that competitive fertilizer prices prevail. This will be more likelyif one firm builds a mixing and bagging plant and dominates the market by lower prices.

6

On the other hand, intervention appears unlikely for the following reasons:

+ Conditionalities attached to the IMF stand-by arrangement, and to the World Bank Structural Adjustment Program, should effectively discourage any reversal of liberalization policies.

+ The recent organization of the ACPE means that the industry now, potentially at least, can speak with one voice and defend its interests against changes in policies

+ Farmer awareness of the benefits of liberalization of both fertilizer and arabica coffee marketing, as revealed by farm surveys, is such that thit there would be strong opposition from the rural sector to a reversal of policies.

1.4.2 Sustainability of the Private Sector

The private sector import and distribution system created under the FSSRP has expanded each year of the program. In 1993/94 this system consisted of three commaercial banks, six importing firms, at least ten distributors handling more than 100 mt plus many handling smaller amounts, and a large number of retailers. These participants continue to make investments in wholesale and retail facilities, and one importer is preparing to invest in a mixing and bagging plant.

The recent formation of the ACPE, and active interest in it by importers and distributors, is another sign of the vitality of the Private sector. Above all, it is the broadening of participation at the import, wholesa'e and l':tail level--the commitment on the part of many individuals and business enterprises who hav,: a stake in the system--which is most likely to lead to a sustainable private sector fertilizer system.

The lack of liquidity in the banking sector of Cameroon has severely limited the availability of credit and this affects private sector marketing of fertilizer at every level. However, importers are now beginning to sell fertilizer Lo distributors on more liberal credit terms, and in one case, setting up a joint venture which involves financing of a wholesaler's stock and sharing of operating costs. This is the beginning of the creation of a self-financing system which is much more likely to be self-sustaining than one dependent on outside financing.

The evaluation of the FSSRP carried out by AID/W in 1990 (Ref. #1), referred to the privatized sysem as a "quasi-market" and raised doubts as to whether it would ever evolve into a "true" market system. The evaluators felt that the availability of subsidies and loans at preferential rates, the management of the system by the TSC, and the intimate involvement of the AID Mission in the program, all indicated that the system was not truly a private sector one and might not be sustainable after the FSSRP terminated. Four years later, these objections seem less relevant. Subsidies in 1993/1994 were only at the 8% level (zero in 1994/95), and can no longer be seen as a key factor in sustainability of the system. Importation loans also now play a minor role in the program, as explained in preceding sections, and in fact importers now rely almost entiely on external sources to finance

7

fertilizer imports. TSC involvement in the program is not intrusive, and indeed with so many

other problems to deal with the government exhibits only minimal interest in the program.

1.4.3 Sustainability of Public Sector Capabilities

At the conclusion of the FSSRP, the governrm1ent was called on to maintain two elements ofthe program. One is the monitoring and information service now being carried out by theTechnical Support Unit (now renamed the Agricultural Inputs Development Unit), located inthe Ministry of Agriculture. AID funds provided support to this unit in the past, and willcontinue to do so under agreements signed with the GRC on the closure of the USAID mission. The sustainability of this unit is thus assured for the next five years. Since thereis no assurance that government support will be available afterwards, the AIDU should seek to recover its costs through subscriptions to its market information services.

The second area of continued involvement of the public sector is the management of theRevolving Credit Fund left behind after the withdrawal of USAID. Agreen:ents to be signedby USAID and the GRC will provide for management of these funds by the Fiduciary Bankunder the supervision of the Technical Supervisory Committee, as in the past. The agreements cover a five-year period, 1994 to 1999. Given the fact that the experience of theFiduciary Bank will continue to be available, and that the reconstituted TSC will includeprivate sector representatives, it seems likely that the funds will be properly managed. There can, however, be no total assurance that this or a future Caneroon government would not seize control of the funds by fiat and divert them to other uses.

1.5 References

1. Impact Assessment of USAID's Agribusiness Program, Olsen, Craig and Roger Poulin,Development Alternatives Inc., February 1994.

2. Economic Policy Reform Impact Assessment of USAD-Supported Reform Initiatives in Cameroon., Eriksen, John and Peter Bloch, Associates in Rural Development Inc., March 1994.

3. Goals, Purposes, and Outputs: An Annotated Guide to the FSSRP, Troung, Tham and T. Walker, April 1989.

4. CDIE Agribusiness Assessment, Cameroon Fertilizer Sub-Sector Reform Program,(Background Paper), Abbott, Richard D., October 1993.

5. Privatization of Fertilizer Marketing in Cameroon: A Sixth-Year Assessment oftheFertilizer Sub-Sector Reform Program, Abbott, Richard andD. Edward K. Dey, ThePostharvest Institute for Perishables, University of Idaho, June 1994. (See also five previous anual assessments.)

8

2. FINDINGS AND RECOMMENDATIONS

2.1 Principal Findings Concerning the 1993/94 Program

2.1.1 Overall Assessment of the Program

Importation of fertilizer under the Fertilizer Sub-Sector Reform Program in 1993/94 was again affected by economic conditions in Cameroon. Imports continued to decline and were only 29% of the level in the first year of the program. Sales of fertilizer by importers to distributors dropped by 10% and the result was that importers' stocks were at very low levels--only 3,000 mt at the end of April. However, a final shipment of 9,400 mt scheduled to arrive in June will restore stocks to more normal levels.

Devaluation of the CFA franc in January 1994, coupled with an increase in world market prices for fertilizer, caused a 70% increase in retail prices of fertilizer and reduced consumption in the January to May period below what it would otherwise have been. Although prices of arabica and robusta coffee, the principal users of fertilizer, are now roughly three times what they were before devaluation, uncertainties about the future led many coffee planters to reduce purchases of fertilizer in the short term. However, benefit/cost calculations show that the use of fertilizer on arabica coffee is quite profitable and the expectation is that consumption will increase rapidly within the next year. The high fertilizer price reduced its use on food crops, since prices for these products did not increase as did those for coffee.

The bright spot in this picture is that despite poor economic conditions, participation by the private sector in the FSSRP continued to increase. Liberalization of the fertilizer market, one of the key objectives of the FSSRP, has led to the creation of a network of wholesale and retail dealers in the main fertilizer consuming Freas of the West, North West and Littoral Provinces. This is a clear sign that the private sector has confidence in the long-term sustainability of the privatized fertilizer marketing system.

The 1993/94 FSSRP campaign officially closed on 30 April 1994. Importers who earmarked before that date have 90 days to clear shipments through customs in Douala in order to qualify for subsidies. After that date USAID involvement in the program ends. Discussions at the Sixth Annual FSSRP Seminar/Workshop, held in Douala in May 1994, led to the restructuring of the program. Subsidies have been eliminated, but the loan facility has been expanded to incorporate both short-term and medium-term lending, the latter intended to facilitate investments in the industry, such as fertilizer mixing and bagging at the port of Douala as a means of lowering the cost to the final user. Another change was the reconstitution of the Technical Supervisory Committee to incorporate three representatives of the private sector, along with four public sector members. The private sector people will be nominated by the newly-organized Association Camerounaise des Professionelsd'Engrais (ACPE), whose members will consist of importers, distributors, and commercial banks (the

9

latter as associate members). The creation of this organization is yet another indication of

the interest and commitment of private sector participants in the reformed fertilizer sub-sector.

2.1.2 Imports and Sales Levels

Imports of subsidized fertilizer under the FSSRP declined again in 1993/94 relative to last year. As of the closing date of the 1993/94 program, only 8,757 mt had actually arrived in country, although another 9,400 mt was en route. The total of about 18,200 mt is below last year's figure of 22,600 mt, continuing the downward trend from 63,000 mt in the first yearof the program. Sales by importers to distributors also declined, from 20,300 mt in 1992/93 to 18,400 mt this past year. This level of sales against the relativeiy small tonnage importedreduced importer stock levels to only about 3,000 mt and virtually exhausted stocks of urea and ammonium sulfate. The arrival of the final shipment of 9,400 mt will restore stocks to more nromal levels.

2.1.3 Participation by Banks and Importers

Three commercial banks were acredited for 1993/94 and two of them-Crdit Agricole du Cameroon and Amity Bank-were involved in importation, one less than in the previous year.Three firms imported fertilizer during the year. IBEX imported 8,700 mt, Groupe One imported 9,400 mt and Bakah Enterprises imported 57 mt. Two other importing firms--ADER and IBE--sold fertilizer from existing stocks, but did not import.

2.1.4 Participation at the Distribution Level

Information available from importers indicated that at least eight wholesaling firms handled amounts of fertilizer in excess of 100 mt during the year. A large but undetermined number of smaller dealers also purchased from importers and distributed at the wholesale or retail level. The number of fertilizer retailers with shops in towns and villages in the main consuming areas continues to increase, a sure indication of the success of the program in creating a private sector distribution network.

2.1.5 Fertilizer Prices

Fertilizer prices are in a transition phase. Though most fertilizer now in the distribution system was imported at pre-devaluation prices, most importers and distributors have alreadyraised prices to a level somewhere in between the old price and what will become the new post-devaluation price. Retail prices for NPK and urea fertilizers range from FCFA 6,000 to 7,000 per sack (ex-Douala) depending on the size of the purchase and the source. Ammonium sulfate prices have increased from an average of FCFA 2,600/sack to about 4,500/sack. Recent post-devaluation CIF quotations for NPK range from FCFA 100,000 to 140,000 per mt (FCFA 5,000 to 7,000/sack), so retail prices may bc expected to rise to the 7,000 to 8,000 FCFA/sack range once fertilizer now in the system is all sold.

10

2.1.6 Effects of FCFA Devaluation on Fertilizer Consumption

Faced with much higher fertilizer prices following devaluation in January 1994, farmers reduced their purchases. In arabica growing areas, planters are beginning to benefit from higher coffee prices, but many are taking a "wai. and see" attitude before buying more fertilizer. In robusta areas, where fertilizer utilization was already low, few planters are currently purchasing fertilizer for cash, though credit sales against future deliveries of coffee continue to be made. Calculations of benefit/cost ratios confirm that fertilizer application is more profitable than before on arabica, whereas its use on robusta has not risen sufficiently to make its application worthwhile. No benefit/cost data is available for food crops, which may use as much as half of FSSRP imports, but it appears that consumption has decreased somewhat as market prices have not increased at the same pace as fertilizer prices.

2.1.7 Use of Importation Loan and Subsidy Funds

Two importation loans were processed, both for IBEX transactions through CrdditAgricole.Imports by Groupe One and Bakah Enterprises used supplier credits rather than letter of credit financing and so these two companies did not qualify for importation loans. As of the date of drafting of this report (May 1994), only the subsidies for the two IBEX shipments had been disbursed; Groupe One and Bakah Enterprises are also eligible for subsidies. Additional subsidies earmarked for Groupe One and Bakah Enterprises expired before they could be used.

2.2 Reconmendat ions

2.2.1 Recommendations Related to Fertilizer Marketing

Liberalize robusta coffee marketing: It is recommended that robusta coffee marketing be liberalized, as is already the case for arabica coffee, and that robusta prices be allowed to find their own level without any interference by the government. Utilization of fertilizer on robusta coffee is currently constrained by low producer prices for this type of coffee. The official minimum price for robusta doubled after devaluation to FCFA 270/kg, though more recently the average price has moved up to around FCFA 300/kg in response to prices beingpaid by some coffee cooperatives. According to officials of NWCA, which markets some robusta coffee in addition to arabica and is aware of curreni market prices in Europe, the cooperative would pay producers FCFA 450 to 500/kg if there were no controls. If coffee buyers paid this price, the benefit/cost ratio for fertilizer use would be high enough to make it profitable, leading to increased coffee yields and higher exports.

Reconstitution of the Technical Supervisory Committee: We agree with the idea that at the conclusion of USAID participation in the FSSRP the Technical Supervisory Committee should be reconstituted to include three representatives of the private sector, along with four from government agencies. These private sector members should be nominated by the ACPE, a body which was formally established in May 1994. Membership in this organization is

11

open to any fertilizer importer or distributor; conmmercial banks will be invited to join in an associate status. We recommend that the association nominate an importer, a distributor and a banker (other than someone from the Fiduciary Bank) for the three TSC positions.

Responsibilities of the new Technical Support Unit: We recommend that the scope of responsibilities of the new TSU-lenceforth to be called the Agri-Inputs Development Unitinclude collection of information on market prices of fertilizer in selected towns and villages in the main consuming areas of Cameroon. This information should be disseminated by the TSU on a weekly basis to the media, or by fax or courier to subscribers willing to pay for this service.

Handling of fertilizer donations: Should any foreign donor agency or government offer to contribute fertilizer to Cameroon, we strongly urge that it not be given outright to users. This would have a negative effect on the private sector fertilizer distribution network created by the FSSRP. Importers and dealers who have invested in fertilizer stocks, storage facilities, and retail stores would find their investments jeopardized by the appearance of free fertilizer in Cameroon. Furthermore, it would clearly affect the viability of any fertilizer mixing and bagging plant which might be built in Douala.

As an alternative to in-kind donations, the donor might be persuaded to make a monetary donation, which could be used to supplement the funds now planned for the Revolving Credit Fund and the Medium Term Lending Facility. Other uses would include paying the costs of training (see below), fertilizer demonstrations, soil testing, or additional market information services. If the donation can only be in kind, then we recommend that the fertilizer be auctioned off in local currency in lots small enough to attract the interest of smaller dealers, and that the proceeds be used as suggested above. We recommend that the guidelines for such an auction be worked out in cooperation with the ACPE.

If at the time the fertilizer is donated, a fertilizer mixing and bagging is operating or nearly cornpleted, we recommend that the donated fertilizer be simple fertilizers (not NPK formulations) in bulk and that the receiving GRC agency contract with the plant operator to mix and bag fertilizer for a fee and that the mixed and bagged fertilizer be sold at auction as above.

Fertilizer marketing training: The recent two-week seminar on fertilizer offered by USAID and the International Fertilizer Development Center was considered a success by all who attended. However, a number of people in the fertilizer business did not attend and have requested that the course be repeated. Reasons cited for not participating included failure to receive information on the place and time of the seminar, and the difficulty of getting away for the full two week period. The TSC should consider organizing similar seminars in the future, but tailored to the desires of those in the fertilizer business and of not more than one week's duration.

12

2.2.2 Recommendations Related to the Revolving Credit Fund (RCF)

Coverage: The RCF should extend its coverage to all types of fertilizer used in Cameroon.

Risk sharing: Risk sharing with tie lending banks should be maintained at the level of 30%,documented by a standby letter of credit committing to reimburse them for that portion of their losses on loans covered by the program.

Total interest cost: Overall, the RCF program should aim to bring the users' total interest cost to a target level close to the discount rate (taux de base ddbiteur ordinaire,or TBDO)of the central bank (BEAC). Provided total cost to the borrower is not brought belowdiscount/money market rates, distortion in the financial markets would be avoided.

Direct loan option: Achieving the above goal using direct lending is difficult because of theconcomitant need to husband the Fund's resources. To get near the interest cost target, thelending conditions under the direct loan option will need to be changed. The loan amount should be increased to 50% (from 30% at present) of fertilizer value. The Commercial Bank(CB) lending rate on that amount should be lowered to 50% of the TBDO, and the interest rate on the Fund's loan to the CB set at 3% below that. This would give the borrower aninterest saving of 3% compared to the current RCF direct loan program.

Interest make-up option: An option using the interest make-up (bonification) techniqueshould be added to the RCF. The 30% risk-sharing under the standby I/c would also applyto this option. Under this option, the RCF would advance no funds to the CB, which wouldhave to fund the loan entirely from its own resources. Interest make-up would apply tointerest on the entire amount of the CB's loan. By regulation the CB may charge a maximuminterest margin on commercial lending (the taux de banque), currently 6.5%, and the RCFwould make up that amount of interest. Compared to the direct loan option, this optionwould more likely enable the RCF to help drive down the fertilizer importer/distributor's total borrowing costs to the equivalent of the BEAC discount rate--a saving of 6.5% over current commercial lending rates.

It is important to note that the RCF should maintain the direct loan program option, with interest make-up available as an option to use if banking liquidity permits.

2.2.3 Recommendations Related to the Medium Term Lending Facility (MTLF)

Following the CFA franc devaluation, the investment cost of any likely project has risensubstantially, because of the higher capital cost (imported machinery) and operating costs (theprice of imported fertilizer has virtually doubled). Conditions for eligible projects and loans require modification to take account of this fact.

Financial ratios: Project eligibility should be redefined so that the total of all short-term debt plus senior long-term debt may not exceed 70% of the borrower's adjusted total assets

13

at the start of the project. Unless proof of recent cash expenditure can be demonstrated, land, buildings, and intangible costs should be valued at zero in the calculation of adjusted total assets. These are more appropriate financial ratios for a capital investment project than the current requirement that investors must contribute 50% equity to the project.

Loan maturit,: MTLF loans should have a maximum final maturity date six years from loan signature, rather than five as at present. This provision should apply to any loan covered by the MTLF, including those benefitting only from the interest make-up option.

Risk sharing: Risk sharing with the lending bank(s) should be established for the interest bonification option as well as the direct loan option, at the level of 25%, documented by a standby letter of credit. As with the RCF, there would be no fee for issuance of the standby I/c.

Maimum loan amount: The maximum total loan amounts covered by the MTLF should be increased to FCFA FCFA 800 million.1,200 million from the current The direct loan option should continue to cover a maximum of 50% of total loan value. The existing second option combining a direct loan and standby I/c should be eliminated. The interest make-up option should cover 100% of the total loan (currently 50%).

Target interest rate: The target rate for the borrower's total loan under the MTLF should be 1.5% above the TBDO. The rate structure of the MTLF is to be flexible (although the interest rate charged on a loan extended under the program will be fixed, not floating) so as to reflect changes that the BEAC may make from time to time in the TBDO or the taux de banque. The pricing under both options would be structured to allow the banks to earn the full amount of the taux de banque.

Under the direct loan option the MTLF loan interest rate to the borrower (i.e., for 50% of total financing) would likely be set at 75% of TBDO (currently 14.0%). The loan from the Fiduciary Bank (on behalf of the Fund) to the Commercial Bank should carry an interest rate below that rate, by a margin equal to the taux de banque.

Under the interest bonification option, the MTLF would make up an amount of interest equal to the taux de banque less 1.5% on the entire loan from the commercial bank to the project investor.

Loan i;aault: The GIP should include a clause specifying the most significant events of

default and including a cross-default clause.

2.2.4 Administrative Recommendations

Earmarking period: The length of the earmarking period in the RCF should be shortened from 90 days (which was appropriate when the Fun's lending was linked to the Subsidy Fund) to 30 days.

14

Earmarking fee: To discourage "frivolous" earmarkings, a fee of FCFA 25 per mt offertilizer should be required to initiate an earmarking under thc RCF, payable in advance;it would be refunded to the extent the earmarking is used. The earmarking fee under theMTLF should be increased to 1/4% p.a., also refundable if the earmarking is used (or ifavailable funds are insufficient to meet a fully conforming request).

Claims for losses by banks: Procedures for processing claims for losses under the standbyletters of credit need to be clarified, and the text of a proforma standby I/c should be added to the General Information Pamphlets for the RCF and the MTLF.

Conflict of interest: The Fiduciary Bank should advise the TSC in writing of any potentialconflicts of interest arising from its business outside the RCF and MTLF, with customers that participate in those programs.

External audit: The new RCF program will need provision for a periodic external review,conducted by the Caisse Autonome d'Amortissement (CAA).

Semiar: The TSC should host a one-day seminar to familiarize participants and prospectiveparticipants with the revised RCF and MTLF programs, emphasizing program options andopeiating details. The seminar would be led by the CAA and the Fiduciary Bank. Amorning session could be limited to commercial banks, the afternoon session to include bothimporters and distributors as well as commercial banks.

2.2.5 Recommendations Related to Farmer Utilization of Fertilizer

Actions by the TSU:

(1) Develop a fertilizer weekly bulletin of no more than a page providing information on the sources and prices of various types of fertilizer on the world market and on the local markets.

(2) Multiply the sites and number of demonstration trials making sure the sites are easilyaccessible to farmers and other fertilizer dealers.

(3) Utilize the data from the trials proposed above to prepare technical bulletins for usageby extension agents and retailers, specifying for each region and/or soil type and each majorcrop the formulations of feitilizer needed, the applications rates and other precautions to take for handling.

(4) Conduct demand studies like the one realized by Frany.As Kamajou and his team in theCenter, East and South provinces. These provinces are potentially important Robusta producers.

15

http:Frany.As

(5) Support bi-annual fertilizer use surveys to permit monitoring at farm level and to facilitate further research in this area.

(6) Carry out a national survey of fertilizer utilization practices by vegetable growers.The'3e crops are becoming more important as cash crops for farmers, and they now utilize fertilizers formulated primarily for coffee.

Actions by the Government of Cameroon:

(1) Promote the liberalization of coffee marketing, especially in the Robusta sub-sector, byrestricting the role of the ONCC to an advisory one, providing technical information on coffee processing and quality control. The newly created professional organization for cocoa and coffee (CICC) should progressively but rapidly take over quality control functiois from the ONCC.

(2) FCFA devaluation has completely changed the fertilizer utilization prospects for farmers. During the current adjustment period, the government should consider measures to reduce fertilizer costs to farmers, including reduction of taxes and duties on imported fertilizer.

(3) TheiLnstallation of a bulk-blending plant should be encouraged so as to reduce the cost of fertilizer to fNrmers, not only in Cameroon but also in the regional market.

(4) Encourage and support the formation of an association of fertilizer dealers comprising importers, distributors, retailers and, eventually, operators of mixing and blending plants.

2.3 The Sixth Annual FSSRP Seminar/WorkshoD

The sixth annual FSSRP seminar/workshop was held in Douala, May 4 and 5, 1994 under the chairmanship of the Secretary General of MINPAT and President of the TSC, M. AlingaAteba Innocent. Representatives of the Fiduciary Bank, commercial banks, importers, and distributors participated, along with officials of MINPAT, MINAGRI, MINFI, MINDIC, the Prime Ministry, USAID, and other donors. Resolutions and recommendations adopted by the group are listed below.

2.3.1 Resolutions

(1) For reasons evoked in previous workshops, and with the additional consideration of the withdrawal of both USAI) and FED from fertilizer programs, participants suggest that, at a minimum, interest rates practised by the two programs be harmonized.

(2) Participants expressed satisfaction at the execution of resolutions and recommendations made at the Fifth Annual Seminar Workshop. In addition, the Bamenda seminar conducted by the IFDC has led to the creation of the Association Camerounaise des Professionels d'Engrais(ACPE), for which participants express their congratulations to the TSC.

16

2.3.2 Recommendations

(1) Reorganization of the TSC:

Considering the b-oad scope of activities cf the private sector in the development of fertilizer marketing after the withdrawal of USAID, participants accepted the recommendations of USAID consultants that the private sector take part in decision-making by tie TSC. To that end, members of the TSC will henceforth be the following:

Public sector: MINPAT - President MINFI/CAA - Controller MINAGRI - Member/Rapporteur MINDIC - Member

Private sector: Importer - Member Distributor - Member Banker - Member

Ex-officio member: Fiduciary Bank

(2) Accompanying measures to attenuate the effect of FCFA devaluation and to stimulate the consumption of fertilizer:

In comparison to the previous three FSSRP campaigns and the present economic conditions in Cameroon, which FCFA devaluation has exacerbated, consumption of fertilizer will continue to decrease unless the government puts into place strong and effective accompanying measures. In view of this situation, participants recommend:

the establishment of free trade zones (points francs industriels) for producers of agricultural products (coffee, cacao, cotton, food crops), like the one for the PROLEG enterprise at Bandjoun, providing for the exoneration of customs duties on imported inputs and agricultural equipment in general, and that of fertilizer in particular, total liberalization of the robusta coffee and cacao sub-sectors with a view to increasing the consumption of fertilizer, and reduced tariffs for the transport by public conveyance of fertilizers and other agricultural products to distant or isolated regions, such as the East Province. a narrowing of the gap between the interest rate charged by commercial banks and the BEAC discount rate for agricultural activities,

17

(3) Accompanying measures to improve the marketing system for agricultural products:

Under the impulse of the New Agricultural Policy, anI of studies such as that carried out by Geomar under the World Bank project for "Promotion and Diversification of Exports of the Republic of Cameroon", Cameroon farmers have been working hard. However, the collection and distribution of most of their products continues to encounter difficulties. The participants strongly recommend an intensification of the diffusion through the media (television, radio, press) of a Rapid Alert System to eliminate or reduce permanently the plague of police barricades on the highways.

(4) Utilisation of the Revolving Credit Fund (RCF) for distributors of fertilizer:

After listening to the annual FSSRP review prepared by the USAID consultant, and his accounting of actions taken in response to resolutions and recommendations made at the Fifth Annual FSSRP Seminar/Workshop, it appears that no distributor has yet benefited from the RCF.

The participants recommend that the TSU again make known to fertilizer distributors the availability of this fund, and recommend also that the conditions of access to this fund be simplified.

(5) Management of possible fertilizer donations:

Despite the implementation of privatization and liberalization policies of fertilizer marketing, it is possible that a friendly country would assist Cameroon by offering a donation of fertilizer. In that event, the participants recommend that the TSC be intimately involved in the disposition of these stocks in order to safeguard the fragile equilibrium of the market.

(6) Definition of areas of intervention of importers and distributors in the marketing of fertilizer:

Every year, distributors complain about direct selling of fertilizer on the local market by importers. The participants recommend therefore that the ACPE make a clear and precise defimition of the respective areas of competence of these two groups in the regulations currently being drawn up.

(7) Maintenance and redeployment of the activities of the TSU:

The participants, after having followed with interest the review of actions taken pursuant to recommendations made at the Fifth Annual FSSRP Review in Douala, July 8 and 9, 1993, especially the one relating to intensification of agricultural extension work on the utilization of fertilizer, decided to -ename the TSU the "Agricultural Input Development Unit" (AIDU), and recommended that:

18

- the AIDU should rapidly improve its system of diffusion of information on the internal and world markets for fertilizer, and in so doing, should be inspired by the example of the "Arabica Marketing Information System" (AMIS),

- the AIDU should intensify its work on fertilizer trials and demonstrations on crops in all parts of the country, and finally,

- the AIDU should organize as often as possible small training seminars for distributors on the utilization of fertilizer on crops in the principal ecological zones of the country.

(8) Revisions to the General Information Pamphlet on the Medium Term Lending Facility and the Revolving Credit Fund:

The need to revise the texts of these documents stems from the withdrawal of USAID from the FSSRP, the complaints received on the form of certain sections of the texts, and the need to ease conditions of access if economic conditions do not improve.

19

3. PERFORMANCE OF THE FSSRP THROUGH 1993/94

3.1 Imports. Sales, and Stock Situation for 1993194 Program Year

Fertilizer imports under the FSSRP in 1993/94 Threewere lower than the previous year.importers purchased from foreign suppliers a total of 18,157 mt, compared to 22,600 mt last year. Of this amount, 9,400 mt had not yet arrived in country as of the end of May 1994 but is expected during June.

Imports, sales by importers to distributors, and the stock balance for the 1993/94 year are as follows:

Exhibit 1 Imports, Sales and Stock Situation, 1993/94

(metric toils)

NPK NPK Urea Ammon Total20-10-10 12-06-20 Sulf

Stocks 6/93 3,247 2,363 2,335 4,653 12,598

Imports to 4/94 7,700 - 1,057 8,757

Sales, 93/94 8,635 1,813 3,335 4,653 18,436

Stocks, 4/94 2,312 550 057 2,919

En route 2,500 - 6,400 500 9,400

Total imports 10,200 0 7,7 500/5 18,157 As of the end of the program year on 30 April 1994, importers had no stocks of ammonium sulfate, while the cnly stocks of urea consisted of the 57 mt which had just arrived. Uncertainties related to devaluation of the CFA franc in January 1994 led importers to delaypurchase decisions as long as possible and resulted in a shortage of urea and ammonium sulfate. Total stocks in the hands of importers at the end of April amounted to only 2,919 mt, but stocks will be replenished with the arrival of another 9,400 mt sometime in June.

3.2 Historical Perspective on Imports, Sales and Stocks

To put the above situation in perspective, Exhibit 2 shows the changes in stock, sales and import.o since the first year of the FSSRP. Figures are rounded to the nearest hundred mt. The same data is graphed in Exhibit 3.

21

Exhibit 2 Imports, Sales and Stock Summary

1988/89 to 1993/94 (metric tons)

Stocks, Imports Sales to Stocks, end beginning Distributors

1988/1989 0 63,000 63,000 0 1989/1990 0 64,000 25,000 39,690 1990/1991 39,000 22,000 44,000 17,000 1991/1992 17,000 31,800 38,900 10,200 1992/1993 10,200 22,600 20,300 12,500 1993/1994 12,500 18,200 18,400 12,300

The import figures for 1993/94 include the final shipment of 9,400 mt which was en route to Cameroon in late May !994.

Unfavorable economic conditions in Cameroon throug.iout the six years of the FSSRP haveresulted in a general decline in import and distribution of fertilizer.the

This is made clear bycurves in Exhibit 3. Imports in 1993/94 will amount to only 29% of the level at thebeginning of the program. At that time, coffee cooperatives were the only distributors andcoffee prices had not begun their decline, with the resulting reduction in demand by coffeeplanters and the diminished role of the cooperatives in distribution. As noted elsewhere inthis report, private distributors have picked up the slack and have created a distributionnetwork which now parallels that of the few remaining cooperatives which purchase and distribute fertilizer.

The years 1989/90 and 1990/91 were marked by imbalances between imports and sales. very large inventories in the hands of importers The

at the end of the 1989/90 season werereduced the following year when much less fertilizer was imported. Since then, imports andsales have been more or less in balance and stock levels have generally been appropriate to %.. conditions.'et

22

EXHIBIT 3 FERTIUZER MARKETING TRENDS 1988-1994

THOUSAND TONS

70

63 --------- 64 Imports63 ......................S l oDsd uo

Sales to Distribtgora

60

" \ :.44

40

- \ -"N* I' .. 38.9

30 -""'...

25 V..'

20 -""". 22 ......... 1....A

20.3 18.2

10

0 L"

88/89 89/90 90/91 91/92 92/93 93/94

FSSRP PROGRAM YEAR

3.3 Private Sector Participation in the FSSRP

3.3.1 Overview

The evolution of private sector participation in the FSSRP since its inception is illustrated in Exhibit 4.

3.3.2 Participation by Banks

Three banks were accredited, but only two banks--Amity Bank and Credit Agricole du Cameroun (CAC)--actually participated in the program. CAC handled the IBEX transactions for import of 8,700 mt, which involved both an imlpoAation loan and subsidy payment. Amity Bank earmarked in December 1993--on behalf of Groupe One and Bakah Enterprises-shipments totaling 35,599 mt. Both earmarkings expired before they could be used, but were replaced by earmarkings for the san;. 1wo importers iotaling 41,500 mt just before the program closed on 30 April 1994.

Many commercial banks continue to have liquidity and solvency problems which affect their ability or willingness to participate in the program. This situation is discussed in Section 4 of this report.

3.3.3 Participation by Importers

A total of twelve importers were active during the year, meaning that they made offers to distributors. Of this number, six sold fertilizer, and of these, three actually imported new stock during the 1993/94 program year.

IBEX continued its involvement in the FSSRP, the fifth consecutive year it has done so. The firm imported 7,700 mt of NPK 20-10-10 and 1000 mt of urea in October and December 1993. This was less than the 10,215 mt imported last year. IBEX was interested in importing additional tonnages, but ran into some problems with its bank, CAC, over FCFA devaluation. (See discussion in Section 4 of this report.)

IBE Group is the successor company to IBE Africa Cameroon, which last year imported 11,780 mt of fertilizer. Due to alleged fraud and mismanagement by local staff, IBE Africa Cameroon was dissolved in July 1993 and operations taken over by the parent company, IBE Group, of New York. As a result, IBE activities during 1993/94 were limited to disposing of existing stocks. Sales of 5,855 mt of urea and ammonium sulfate reduced stocks to zero by the end of the program year.

Groupe On. acted as the principal distributor for IBE fertilizers in last year's program. The relationship with IBE has since been terminated. As of the close of this year's program, Groupe One had earmarked through Amity Bank for planned imports of 10,000 nt of NPK

24

Exhibit 4 Private Sector Participation in the FSSRP, 1988/89-1993/94

Economic Operator

Fiduciary Bank

1988/89

1

oil

1989/90

1

1990/91

1

1991/92

1

199193

1

1993/94

1

Accredited commercial banks of which actually participated

4 2

4 4

4 1

5 4

3 3

3 2

Suppliers 3 3 3 4 3 4

Active Importers of which wholesaled stocks of which actually imported2

14 3 3

10 3 2

10 3 1

13 3 3

12 4 3

12 6 3

Active Distributors of which actually distributed

of which are cooperatives of which are "for profits"

6 4 4 0

16 10 6 4

18 17 6

11

22 20

9 11

many ..

many

Provinces covered (out of 7) 3 5 5 6 7 7

Note: 1993/94 data are preliminary Source: AMIS Annual Assessments, Fiduciary Bank Records

25

20-10-10, 1,000 mt of NPK 12-06-20, 10,000 mt of urea and 1,000 mt of anonium sulfate-a total of 22,000 mt. The company succeeded in importing 9,400 mt of this amount (6,400 mt of urea, 2,500 mt of 20-10-10 and 500 mt of ammonium sulfate) before the program closed. Earmarking on the balance expired.

Bakah Enterprises imported a small amount (57 tons) of urea from Nigeria just as the program closed this year. While this firm has never before imported under the FSSRP, the manager is a former principal in CAMATREX, an importer in earlier years of the program which is no longer active. Bakah earmarked through Amity Bank for 10,000 mt of 20-10-10, 7,500 mt of urea, and 2,000 mt of ammonium sulfate just before the close of the program. None of this tonnage was imported and earmarking expired.

3.3.4 Participation by Distributors and End Users

Exhibit 5 on the following page depicts the fertilizer distribution system in Cameroon as it has evolved over the six years of the FSSRP. It was included in last year's annual assessment, and is repeated here since it is still valid. The percentages shown for each of the importer sales channels have changed only slightly from last year.

Parastatal organizations and private plantations: These organizations include CAMSUCO, CDC/Del Monte, MAISCAM, SPNP, and SBM. They purchased 3,500 mt or 19% of the total. Last year the percentage was 16%.

Coffee cooperatives: Cooperatives purchasing fertilizer during the year included CAPLAMI, CAPLAME, CAPLABAM, NWCA, and UCAL. Their purchases totaled 6,655 mt, or 36% of the total. Last year it was 37%.

Other distributors and purchasers: This category includes both independent (i.e., not cooperatives) distributors purchasing more than 100 mt, and small purchasers or users buyingless than 100 mt. There were eight distributors buying more than 100 mt for a total of 2,394 mt, or 13% of the total. There was a large but undetermined number of small buyers who accounted for 5,887 mt or 32%. Together they purchased 45% of the total amount of fertilizer distributed. In last year's report the two categories were lumped together and made up 47% of the total.

Independent distributors continue to make up the most dynamic sector in the distribution network. Data on the number of such companies is not available, but we note that several new ones have appeared this year. An indication of the health of this sector is the fact that importers are increasingly willing to extend credit to distributors who have a track record and have proven themselves reliable.

26

EXHIBIT 5 FERTILIZER DISTRIBUTION FLOW

WHOLESALE RETAIL USER

COFFEE

36% COIVES COFFEE AND

FOOD CROP

FARMERS

NEaL. IMPORTER OWNED

RETAIL IMPORTERS

STORES

RETAIL

STORES PARASTATAL

43% INDEPENDENT ORPANZATIONS PLANTATIONS

DISTRIBUTORS

19%

There has been a large increase in the number of retailers stocking fertilizer in the high consumption areas of the West, Littoral and North West provinces. This subject is treated in some detail in Section 5 of this report.

3.4 Fertilizer Prices

Fertilizer prices are in a transition phase. Fertilizer now in the system was imported before devaluation, but importers and distributors have already raised their prices. Whereas NPK fertilizers and urea were selling at an averg-. retti pric- of F0 .4000 -r sack last year before devaluation, retail prices in many areas are around 6,000 per sack-an increase of 70%. Ammonium sulfate prices have gone from about FCFA 2,600 per sack to 4,500 per sack, likewise a 70% increase.

CIF ccsts of fertilizer, influenced by devaluation of the FCFA and higher world market prices, vill be more than double last year's costs. In May 1994, importers reported that suppliers were quoting prices for NPK fertilizers of FCFA 120,000 per mt, for urea about FCFA 110,000 per mt, and for ammonium sulfate FCFA 82,000 per mt. This compares to average 1992/93 costs paid by one importer of FCFA 52,500 per mt for NPK, 53,400/mt for urea, and 40,700/mot for ammonium sulfate.

If importer margins and distribution costs remain the same it can be expected, therefore, that retail prices of newly imported NPK and urea fertilizers will be in the FCFA 7,000 to 8,000 per sack range, while ammonium sulfate will retail for between FCFA 5,000 and 6,000/sack.

3.5 Effects of FCFA Devaluation on Benefit/Cost Ratios

As described in the preceding section, fertilizer prices to the farmer are already 70% higher than last year, and will soon increase further. How will this affect consumption? The amount of fertilizer actually purchased by farmers is the result of a determination made by each individual which takes into account the changes in price not only of fertilizer but of the crops on which fertilizer is applied. In fact, producer prices for both arabica and robusta coffee are about three times what they were in 1993. While the farmer may make ihis determination instinctively, it can be usefully expressed in terms of a calculated benefit/cost ratio of using fertilizer on a given crop.

Exhibit 6 tabulates this ratio for arabica and robusta coffee. The upper half of the exhibit charts the changes in price for the types of coffee since 1987/88. The figures for 1993/94 show the dramatic increase in coffee prices due to devaluation.

28

Exhibit 6

Economic Returns to Fertilizer Application on Coffee9 (300 kg/ha NPK 20-0-- 10)

8

.27

c-)

2 1 \

01987/88 1988/89 1989/90 1990/91 1991/92 1992/93 1993/94 1994/95

Agricultural Year ...Arabica coffee Robusta coffee..

DATA TABLE ____3___ -/Z7 ________ARAB ICA COFFEE ROB USTA COFFEEfertilizer producer benefit: producer benefit:

YERcost price cost price costYER (FCFA/kg) (FCFA/ka) ratio __(FCFA/kg) rati1987/88 45 520 7.90 440 4.291988/89 55 475 5.93 4401989/90 3.6058 250 2.93 175 1.37

1909 9202.70 155 1.1919192202.79 155 1.14238 100 0.72

Note: Shaded area indicates post- FCFA devaluation period

29

http:19192202.79

In the bottom half of the table, changing fertilizer prices are listed along with coffee pricesfor these years, and benefit/cost ratios are listed for each type of coffee. These ratios are based on the economic returns of fertilizer use, expressed in terms of the incremental production realized from the application of a given amount of fertilizer. The assumptionsused in making the calculations were that for an application of 100 kg of NPK 20-10-10 (containing 20 kg of nitrogen), the marginal increase in production per hectare was 51 kg for robusta and 80 kg for arabica.

The data show that the benefit/cost ratio in 1993/94 was 3.76 for arabica and for robusta 1.13. Studies in many countries have shown that the benefit/cost ratio must exceed 2.0 before a farmer considers it worthwhile to apply fertilizer. On this basis, the figures suggest that, at current prices, farmers will use fertilizer on arabica but not on robusta. Cameroonian coffee planters have indeed come to this conclusion in practice. Distributors report that very little fertilizer is being applied to robusta, and then only when farmers are extended credit againstfuture deliveries of coffee. Application on arabica coffee trees continues at a rate similar to last year.

During the team's field trip this year, we asked distributors how their customers were reacting to devaluation and how this had affected their sales of fertilizer. Sales were lower in every area we visited, although the effect varied according to the region and the crops cultivated.

Arabica coffee: From the foregoing data it is apparent that planters of arabica coffee will benefit the most from changes in prices following devaluation. However, few arabica planters have actually experienced this benefit, either because they delivered coffee before devaluation and were paid the old price, or because--in the case of cooperative members--theyhave received only partial payment for coffee delivered. For this reason, planters were taking a "wait and see" attitude. The general opinion among knowledgeable people in the arabica areas was that it would take at least year, and pchaps for some mucha as as two years,before planters will have fully "digested" the new prices and increased their purchases of fertilizer.

Robusta coffee: Opinion in robusta growing areas about future demand for fertilizer was not optimistic. As long as robusta coffee prices remain around FCFA 300/kg, fertilizer application is simply not profitable. Cooperatives and other distributors told the team that the main effect of devaluation on robusta production has been to induce farmers to harvest the maximum amount without expending money on inputs. One way they do this is to clear undergrowth around coffee trees in order to be able to recover more easily coffee cherries which have fallen to the ground.

Food crops: A significant portion of fertilizer imported under the FSSRP is used on food crops. This amount--estimated by some at as much as 50% at present--has been steadilyincreasing over the years as the profitability of coffee growing decreased. These cropsinclude vegetables (tomatoes, cabbage, peppers, beans, etc.) and maize, mainly marketed within Cameroon but also within the sub-region. While data is not available, the benefit/cost

30

ratio is generally thought to have been quite high before devaluation. This ratio undoubtedlydeclined after devaluation since market prices for food crops have increased only slightlywhile fertilizer prices have almost doubled. Nevertheless, fertilizer use is likely to continue on these crops, though at a somewhat reduced level. In any case most of the crops require some fertilizer to achieve even minimal yields.

3.6 Importation Loan Facility Operations

Status of the Importation Loan Facility at the end of the 1993/94 program year is shown inExhibit 7. These loans are for 30% of the CIF value of the shipment and are due in 180 days. For transactions not financed by a letter of credit issued by a local bank, an importation loan is no longer a requirement for imports under the FSSRP.

Only two loans were processed, both of them for the IBEX transction through Crddit Agricole. The first was disbursed on 11 November 1993 and became due on 11 May 1994. The second was disbursed on 6 January 1994 and is due on 6 July 1994.

The imports by Groupe One and Bakah Enterprises which took place just as the programclosed did not result in importation loans as they were not financed by letter of credit.

3.7 Subsidy Fund Operations

Disburser, it and earmarking of subsidies as of the end of the program year on 30 April 1994 are shown in Exhibit 8.

For the two IBEX transactions, subsidy earmarking took place on 22 October and 8December 1993. The importer had 30 days to present evidence of shipment, and disbursements were made after the shipment cleared customs in Douala (which cannot belater than 90 days from date of earmarking). For the first shipment, disbursement took place on I1 November 1993 and for the second on 4 March 1994.

Bakah Enterprises imported 57 mt of urea at the end of April and requested a subsidypayment. Payment is expected to take place during the first week of May.

Just before the program closed at the end of April, Amity Bank requested the Fiduciary Bank to earmark on behalf of two of its clients, Bakah Enterprises and Groupe One. Groupe One has two earmarkings for a total of 22,000 mt, and Bakah earmarked for 19,500 mt. Of these amounts, a Groupe One import of 9,400 mt was underway as the program year closed, so subsidies will be payable only on that amount.

31

E' hibit 7 Importation Loan Status

(as of 30 April 1994)

Transaction NO.

Commercial Bank

Metric Tons Importer Earmark Date Loan Distbursed

Date Disbursed

Date Repaid

FCFA 000

93/94-1 CAC 15000 IBEX 22.10.93 89,250 1!. 11.93 Open

93/94-2 CAC 3700 IBEX 08.12.93 59,063 06.01.94 Open

Transaction NO.

93/94-1

93/94-2

93/94-5&6

93/94-7

Bank

CAC

CAC

AMITY

AMITY

Exhibit 8 Subsidy Disbursement and Earrarking

(as of 30 April 1994)

Importer Metric Tons Earmark Date

IBEX 5000 22.10.93

IBEX 3700 08.12.93

Groupe One 9400 27.04.94

Bakah 57 J27.04.94

Subsidy Amount

000 FCFA

37,000

25,580

57,360

340

Disbursement Date

11.11.93

04.03.94

Not yet

30.04.94

http:30.04.94http:04.03.94http:11.11.93http:J27.04.94http:27.04.94http:08.12.93http:22.10.93

4. FINANCIAL PERFORMANCE OF THE PROGRAM IN 1993/94

4.1 Financial Conditions and Banking Environment in Caneroon

The FSSRP program continues to operate in an extremely difficult economic and financial environment. Its past financial performance, and planning for future programs, must take full account of that context.

Between 1984/85 and 1992/93 Cameroon's real gross domestic product probably contracted by more than 25%. In 1992/93 gross domestic product in current prices declined about 9%, in constant prices almost 5%. The outlook for 1994 is for a further decline in real GDP of almost 6%.

Before the CFA franc devaluation on January 12, 1994, inflation had been low, and 1993 actually witnessed deflation of almost 4%. Following the devaluation, consumer prices for the full year 1994 are projected to rise 13% over 1993 levels.

Before January 1994, despite the non-inflationary/deflationary environment, interest rates were extremely high. The central bank's discount rate was 11%, and effective bank lending rates were above 20%. Real interest rates, then, were at least 25%. Such rates alone would help bring unemployment, labor unrest, devaluation, and/or declining output in any economy, and Cameroon was no exception.

Following devaluation, the authorities raised the discount rate an additional 3%, to 14%, and bank lending rates rose accordingly. This step presumably was taken both as a precautionary measure to help contain post-devaluation inflationary pressures and also in hope that flight capital would be induced to return to the country because of the high rates themselves. (The former objective has perhaps been achieved already, the second apparently has not.) Although these rates may fall somewhat later in 1994, they will no doubt remain at very high levels for the balance of 1994.

The economic and financial outlook beyond 1994 is problematic. It depends above all on the speed and effectiveness with which the Government carries out the reforms envisaged in the agreements with the IMF that accompanied the devaluation, and the way those reforms work out in practice. Among other factors that could help improve the situation, is the fact that if the Government complies successfully with the reform program, the World Bank and other external donors plan to inject substantial sums into Cameroon, targeted particularly at supporting productive activities.

Assuming successful implementation of the reforms, projections for 1994/95 show an increase in Cameroon's real GDP of well over 3%, improving further to 5% by 1996/97. Inflation for 1994/95 is projected at 19%, but would decline thereafter, to a very respectable level of 2% by 1996/97.

35

The evolution of interest rates is, of course, equally problematic. Two main factors that the authorities most likely will take into account in setting rate levels ar,- domestic inflation and interest rates in France.

In the immediate aftermath of devaluation, prices of imported goods of course rose substantially, and some domestically produced goods as well. Many sellers found, however, that purchasers simply could or would not pay twice as much for the same goods. In particular, after rising some 30% in January-February, the "local market basket"